[Congressional Record Volume 156, Number 51 (Tuesday, April 13, 2010)]
[Senate]
[Pages S2222-S2224]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                            FINANCIAL REFORM

  Mr. GREGG. Mr. President, I rise to speak a little bit about one of 
the major issues which we are about to take up here in the Senate and 
which has been discussed at considerable length throughout this 
country, and especially here in Washington, over the past 2 years as we 
have dealt with the financial crisis, and that is the issue of fiscal 
reform and financial reform.

[[Page S2223]]

  The country went through a traumatic experience of inordinate 
proportions.
  We were on the verge in the fall of 2008 of having our entire 
financial industry implode, and not only the big financial systems in 
New York City and around the country, but Main Street America was 
clearly at risk and had the potential to suffer massive damage.
  That cataclysmic event didn't occur because we as a Congress and the 
administrations of President Bush and of President Obama took some very 
bold and aggressive action in the way of coming in and stabilizing the 
financial industry of this country. As a result, we did not have the 
type of events that were predicted.
  Some had said if the financial institutions had been allowed to 
unravel, we would have been into another Depression-like period. One 
former Secretary of the Treasury projected that unemployment could have 
gone as high as 25 percent. Obviously, we have been through a difficult 
time. The recession has caused great harm. Americans have been under 
tremendous financial stress. But the damage that might have occurred 
has been muted to some degree by the actions we took. Now we are at 
least getting the TARP money back with interest from the banking 
industry. We are not getting it back from the automobile industry or 
AIG, but from the banking industry we are getting it back with 
interest, and we are going to actually make money for the American 
taxpayer, the stockholders in these various entities we had to support.
  The question remains, how do we avoid this type of event occurring 
again. That involves a lot of different actions that should be taken, 
because the causes of this event were multiple. One of the causes was 
clearly that the Federal Reserve kept interest rates too low for too 
long and made money too readily available. Another cause was the 
Congress's own decision throughout the 1990s and the early part of this 
decade to basically promote--and in some instances force--lending for 
the purpose of buying homes, when the people buying the homes didn't 
have the wherewithal to support the obligation they were undertaking. 
The homes in many instances didn't have the value at which they were 
assessed. There was an assumption of appreciation that would occur that 
never occurred.
  A third cause was plain, old-fashioned, horrible, and sometimes 
illegal underwriting, where people were essentially putting out loans 
in a totally inappropriate manner. Then those loans were being 
securitized. I have described it as an inverted pyramid, where possibly 
the person who was giving the loan was just interested in the servicing 
fees of making the loan, in the origination fees of making the loan, 
not in the actual obligations of the loan, and then the loan ending up 
being securitized out in the market. You had all sorts of counterparty 
liability and multiple structure built on top of this one loan that 
basically didn't have either the asset value or the capacity of the 
individual to pay it back. That was the systemic event that was a 
function of bad underwriting.
  So what can we do to correct this? Well, one thing we can do, 
obviously, is reform our financial structure in this country. It 
clearly wasn't up to the regulatory needs that were necessary, and 
there was clearly a lot of activity occurring in the financial markets 
that was wrong and inappropriate. There is this huge discussion going 
on now, bills have made their way through the House, and there has been 
a proposal from the administration--in outline form at least--and there 
is one from Senator Dodd and specifics that have been brought forward 
in the Banking Committee. There is going to be a major attempt to 
reorganize our financial institutions.
  I think that as we go down this path we have to be thoughtful and 
constructive. There is this fervor of populism sweeping across our 
Nation on this issue. The fires have been fanned by the White House and 
a lot of other people in a very inappropriate way. Populism isn't a 
good way to try to address something as complex as this type of issue. 
It is sort of like a beach ball bouncing down the beach that is caught 
up in the wind. That is the way this financial reform effort seems to 
be going forward. There is not a lot of thought behind it--just a lot 
of energy and talk, with ideas that may be politically attractive but 
in the end will probably do more harm than good.
  Our goal should be three things: One, we should reform the systems. 
We need to put into place, to the fullest extent we can, changes in the 
way we regulate the financial structure so we avoid a future systemic 
event. It is pretty hard to project what the next systemic event will 
be, but we know what the last one was and we should be able to correct 
those problems. We can anticipate to some degree what the next events 
may be, and we should try to do that.
  Second, we should recognize that we are in a competitive world, and 
that what we do in the United States to structure our financial system 
is going to determine whether the United States remains competitive 
with other nations that have sophisticated financial systems. It is 
very important that in doing this we not push offshore American jobs 
and American capital, because it becomes too onerous to manage capital 
and create jobs in the United States in the financial sector. We, in 
fact, should have as one of our goals--the first goal being addressing 
the system's risk--the desire to make America the best place in the 
world and the soundest place in the world to create capital and credit, 
so that the engine that drives our economy--remember, our economy is 
driven not by the government. I know the President says the more you 
grow government, the more prosperity you get, and he is certainly 
trying to prove it, but that is not what drives our economy. What 
drives our economy is entrepreneurs, people willing to take risks, the 
initiatives by Americans to create jobs. You cannot do that unless you 
have credit, and you cannot do it unless you can get capital.
  One of the great geniuses of our system, which has made us more 
competitive than the rest of the world, is that we have always been a 
place where capital and credit have been readily available to 
responsible people and risk-takers. We need to keep that atmosphere. 
When we are finished with this process, we should have a regulatory 
regime that addresses the issue of systemic risk and at the same time 
says to the world: bring your capital here; this is the best place to 
make a loan and underwrite entrepreneurial spirit.
  Third--and this is tied to the second--we need to remember this is 
about Main Street, about making sure that on Main Street in America 
people have the wherewithal to take that risk, and to get that job, and 
to buy that house, but that they have it in a context of a sound 
banking system, one that is a supportive and strong one, and a sound 
financial system--not one that has been forced to retract as a result 
of excessive regulations being put on it here in Washington.
  If we approach this in a thoughtful way, a pragmatic and constructive 
way, rather than this populist fervor, where we say everybody on Wall 
Street is evil, and everybody in banking is evil, and everybody who 
makes loans is evil--which seems to be the philosophy or theme around 
here--if we take a more constructive and thoughtful way, we will 
actually end up with a much stronger and better nation. Often these 
periods of populist fervor--and we have had a lot of them--Huey Long, 
William Jennings Bryan--the list is long. Those folks usually end up 
cutting off their nose to spite their face. These ideas sound good and 
have a nice jingoistic ring to them, but in the end it undermines the 
ability to do the basic purpose, which is to make America more 
prosperous and create more opportunity for Americans and create more 
jobs.
  This is not an issue that needs to be partisan. We have a lot of big, 
complex questions here to address. With the exception of one, as far as 
I can tell, none of them has any partisan flavor to them of any 
significance. First, of course, is what do you do about ``too big to 
fail.'' First, it should not exist. There should be no business in this 
country that is too big to fail. Basically, any company, any business 
that makes bad decisions should not have some implied guarantee that it 
is going to be bailed out by the Federal Government or the American 
taxpayer. If you make a bad decision and put your financial house at 
risk, your stockholders should pay the price; your secured bondholders 
should pay the price,

[[Page S2224]]

not the American taxpayers. I think there is agreement on that.
  On our side of the aisle we have some good ideas on how you end ``too 
big to fail.'' As a practical matter, they are better ideas than have 
been put out by anybody else so far. But they are not partisan ideas. 
They are just good, sound policies as to how you accomplish this. It 
could be done. The best ideas have been put forward in a bipartisan 
way, by Senator Warner from Virginia and Senator Corker from Tennessee. 
That is the first issue. We should be able to reach a comprehensive 
agreement on that.
  Second, of course, is how do you manage risk and structure our 
regulatory regime so they can see that risk coming and take action. I 
think there is consensus on both sides of the aisle. Basically, you set 
up some sort of risk council, where you bring key regulators in and 
make sure there is communication, you try to end the stovepipes, and 
you try to cross-fertilize the information, and you don't allow 
arbitraging regulators so people don't go out and hire the cheapest or 
weakest regulator. There is not much difference of opinion on that. We 
can reach agreement on that.
  Third, of course--which is huge here--is the question of derivatives, 
which are very complex. There is no simple answer to this question, on 
this issue, when you look at the detailed language. What is the purpose 
of derivatives? It is to basically give the market liquidity, to make 
sure you have the ability to put out the credit, to make sure that when 
some business in America needs to protect itself from a downside risk 
it sees coming at it, it has the capacity to buy that type of 
protection in the market, that type of insurance. They are extremely 
important instruments for the purpose of basically being the insurance 
and the oil that makes the American machinery of entrepreneurship and 
job creation work. Big companies and smaller companies need them, but 
especially big companies need these instruments. They need to have them 
readily available in a way and in a form that makes them usable.
  I have been working with Senator Reed from Rhode Island for a number 
of months on almost all the technical issues of how to make the 
derivatives market stronger, better, and more sound, basically get more 
liquidity and transparency. On almost all issues we have a pretty good 
agreement and sense of where we can go. If we continue to work on it, 
hopefully, we can reach a complete agreement. We do have an issue on 
the question of mandated exchange treatment of derivatives, which I 
think can be resolved--I hope. It is not a partisan question. It is a 
question of how you do it best. That is the approach we should take.
  Last is the issue of regulatory structure. Who should regulate what? 
That is a question of how best you line up the regulators to make sure 
there isn't regulatory arbitrage where people try to shop for the best 
regulator. I strongly believe the Fed needs to be a major player in the 
regulatory structure. The Fed has shown itself to have the depth and 
professionalism and the resources to regulate effectively. I hope we 
would end up with a structure that would recognize that fact. I think 
there is general agreement on structure that can be reached here. 
Again, I think we can reach an understanding.
  The issue where we have significant differences is consumer 
protection and how you deal with that. On our side, most of the folks 
strongly believe you cannot separate consumer protection from safety 
and soundness. The regulators who have the responsibility for safety 
and soundness should have the responsibility for consumer protection, 
and it should be at the same level so there is no question that the 
consumer receives the same type of attention and support that the 
regulators put into trying to make sure the banks the consumers get 
their loans from are safe and sound. When you separate the two and set 
up a freestanding, autonomous consumer agency, you create significant 
issues on safety and soundness. The purpose is to make our financial 
system stronger, not weaker. A separate independent consumer agency 
with potentially a political agenda or social justice agenda, which has 
nothing to do with safety or soundness, could easily undermine safety 
and soundness of the banking industry, especially the community banks--
remember, these are the folks on Main Street--essentially creating an 
atmosphere where loans have to be made to people not based on safety 
and soundness but based on a social or political agenda of whoever runs 
the consumer agency that is independent and autonomous. It makes no 
sense. But, again, this is an issue that can be resolved.

  There have been good ideas put forward by Senator Shelby. At one 
time, we almost had an understanding between Senator Shelby and Senator 
Reid on this issue. So this is no reason, in my opinion, to stop the 
progress on getting a bipartisan, comprehensive bill. The only thing 
that stands between us getting a bipartisan, comprehensive bill, 
stopping that progress, is this political issue; the fact that the 
administration has two paths it can take. It can take the path where we 
reach a comprehensive, thoughtful, constructive bill that basically 
does what we need to do in the area of protecting the financial 
structure of this country from systemic risk and make sure we have the 
most competitive financial markets in the world and protect Main Street 
and make Main Street viable, allow people to get loans on Main Street, 
it can pursue a bill such as that or it can pursue a political bill, 
carrying the banner of populism forward on the theory that somehow they 
win points by doing that.
  They may win short-term political points. I don't think they do, 
actually. But in the long term, the effect that will have on our 
capacity to produce credit in this country for Americans who need 
credit in order to do things such as buy houses, send their kids to 
colleges, or basically just start a business and create jobs, it will 
be dramatically chilling, to be kind.
  We will see a lot of the institutions which compete in this Nation 
having to go overseas. We will see a lot of companies that need to use 
derivatives in order to make their products salable and make sure they 
are not hit with unexpected cost increases or events which are out of 
their control unable to buy those instruments or obtain those 
instruments in the United States, so they will have to go overseas. We 
will see credit markets where consumers will end up paying higher 
interest rates because they are basically paying for people who are not 
paying back their loans at a much higher rate, so the good performers 
end up paying for the bad performers, which inevitably ends up costing 
the good performers much more in the way of their credit.
  These are the results of a populist tact, and they are not good 
results, in my opinion. They are not constructive. They are so 
unnecessary because we really have within our grasp the capacity to 
reach an agreement, pretty much across the board, on all the major 
issues that affect the question of financial stability and to try to 
address what happened in late 2008 in a constructive way.
  I am hopeful that will be the course that is taken, that we do have a 
consensus approach rather than a confrontational approach, and that we 
do have an approach which understands that our first obligation is not 
to get votes, not to win a political fight, not to have a jingoistic 
saying that resonates at election time but, rather, to make America 
stronger, more economically sound, more vibrant, and a place where when 
one wants to create a job, one has the capacity to get the credit to do 
it. That should be our goal. I hope we will pursue this regulatory 
reform effort in that manner.
  Mr. President, I yield the floor and suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The assistant legislative clerk proceeded to call the roll.
  Mr. ROCKEFELLER. Mr. President, I ask unanimous consent that the 
order for the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.

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